IBM Lays Down Challenge to Rival

IBM is years ahead of rival Hewlett-Packard in building the integrated software and services business needed in a modern IT company, according to one of the top lieutenants to Sam Palmisano, IBM chief executive.


Mike Daniels, head of IBM’s services division and a leading contender to succeed Mr Palmisano, threw down the challenge ahead of a key HP strategy session on Monday in which Léo Apotheker, HP’s new chief, is due to lay out his plans for the company. While Mr Apotheker has made it clear that he plans to boost HP’s presence in software, the IBM executive suggested that focusing on building individual divisions would not be enough to put HP level.

“It’s not like we have a company that has a software strategy and then a services strategy or a hardware strategy,” Mr Daniels said.

By tying its software and services businesses more closely together, IBM has been able to boost its profit margins ahead of HP and is on track to maintain its lead with further expansion over the next five years, he added.

“I think it would take a long time for anybody to accumulate the kind of capability that we have,” the IBM executive said.

Wall Street has seen a sharp divergence in sentiment over the two leading IT suppliers to companies and governments over the past year, with IBM’s shares up by 27 percent and HP down 20 percent.

While HP’s stock had recovered the ground it lost after the sudden departure of its chief executive Mark Hurd last August, it has since fallen again on concerns about its PC business and parts of its services operation.

Mr Daniels played down Wall Street concerns that HP’s ambition to expand in software would push up the price of potential purchases, forcing IBM to set aside more of its own cash to continue with its own acquisitions.

“I don’t see one more person in the marketplace as changing [things],” said Mr Daniels, adding that IBM already knew “the next three or four” acquisitions that would add to its long-term plans.

In one example of how it has tied its software and services businesses closer together, IBM said it had spent $14 billion on software acquisitions and another $2 billion on hiring and training consultants to build a business in analytics, to help customers make better use of their data.

That had included doubling to 400 the number of mathematicians who write the algorithms needed to make use of the data, more than employed by any other private company, said Mr Daniels.